North America Indexes

Best North America ETFs for Irish Investors

North America ETFs allow you to invest in a wide range of companies across developed North American countries, namely the United States of America and Canada. Our top pick for the best overall North American ETF is the State Street SPDR S&P 500 UCITS ETF, a physical, accumulating ETF domiciled in Ireland with a TER of 0.03%. Its ISIN is IE000XZSV718.

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Flags of the USA and Canada, the two countries that make up North America ETFs.
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Written by:
Dan Malone

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Why we picked this ETF

The State Street SPDR S&P 500 UCITS ETF (Acc) offers the joint-lowest TER of any S&P 500 ETF available to Irish investors at 0.03%. It’s an Irish-domiciled fund with an accumulating, unhedged share class that uses a full replication strategy. It has a positive annualised tracking difference since inception.

Why we picked this ETF

The State Street SPDR S&P 500 UCITS ETF (Dist) offers the joint-lowest TER of any distributing S&P 500 ETF available to Irish investors at 0.03%. It’s an Irish-domiciled fund with a distributing, unhedged share class that uses a full replication strategy. It has a positive annualised tracking difference since inception.

Why we picked this ETF

The Invesco S&P 500 UCITS ETF (Acc) offers the joint-lowest TER of any synthetic S&P 500 ETF available to Irish investors at 0.05%. It’s an Irish-domiciled fund with an accumulating, unhedged share class that uses a total return swap strategy. It has a positive annualised tracking difference since inception. Invesco is one of the most transparent providers of synthetic ETFs.

Why we picked this ETF

The State Street SPDR S&P 500 EUR Hdg UCITS ETF (Acc) offers the joint-lowest TER of any euro-hedged S&P 500 ETF available to Irish investors at 0.05%. It's an Irish-domiciled fund with an accumulating, euro-hedged share class that uses a full replication strategy. It has a positive annualised tracking difference since inception.

Why we picked this ETF

The Invesco MSCI North America Swap UCITS ETF (Acc) offers exposure to the MSCI North America Index, covering 85% of the North American universe for a TER of 0.08%. It’s an Irish-domiciled fund with an accumulating, unhedged share class that uses a total return swap strategy. It has a positive annualised tracking difference since inception. Invesco is one of the most transparent providers of synthetic ETFs.

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    North America Indexes

    All North American ETFs will base their investments on a North America index. There are four main indexes that are regarded as being representative of the developed North American market:

    S&P 500 Index

    The S&P 500 Index is made up of 500 leading companies in the United States, representing 80% of the total value of the US stock market.

    MSCI USA Index

    The MSCI USA Index consists of over 530 large and mid-cap companies in the United States. It covers 85% of the total value of the US stock market.

    MSCI North America Index

    The MSCI North America Index is made up of over 615 large and mid-cap companies across the United States and Canada, representing 85% of the total value of those markets.

    FTSE North America Index

    The FTSE North America Index comprises over 580 large and mid-cap companies across the United States and Canada. It covers 85% of the developed North American investable market capitalisation.

    Key Insight:

    For North American indexes, the weighting split between US and Canadian companies is around 95% and 5% respectively.

    Comparing North America Indexes

    North American indexes measure very similar stocks. They will nearly always all have the same top 10 constituents. However, there are subtle differences between them, which are worth trillions of dollars in additional coverage. Irish investors need to ensure that their ETF is tracking a North American index which measures companies in countries that they want exposure to.

    Key Insight:

    The CRSP US Total Market Index and the Russell 3000 Index are two other well-known North American indices. The former includes over 3,400 US companies while the latter has over 3,000. They represent 100% and 98% of the investable US equity market respectively.

    However, there are no readily available UCITS-compliant ETFs that provide Irish investors with their respective returns. For that reason, they’ve been omitted from the table above.

    Best S&P 500 ETFs

    Our current pick for the best S&P 500 ETF overall is the State Street SPDR S&P 500 UCITS ETF. We like this ETF because:

    • 1
      It has a low total expense ratio (TER) which helps preserve returns
    • 2
      It automatically reinvests dividends, allowing investors to defer Irish tax
    • 3
      It’s domiciled in Ireland, making use of Ireland’s favourable tax treaty with the United States

    What to Consider When Choosing an S&P 500 ETF

    There are a number of factors to consider when choosing an S&P 500 ETF to invest in.

    An accumulating S&P 500 ETF will reinvest any dividends it receives from companies in the S&P 500 index by buying more shares in those companies. The effect of this is that the ETF will have a higher net asset value (NAV) which, in turn, increases the value of the ETF’s shares for shareholders. You will not receive a cash dividend from accumulating ETFs. This can be beneficial because Irish investors don’t have to pay tax on the dividends that are reinvested by the ETF.

    A distributing S&P 500 ETF will pass on the dividends that it receives from companies in the S&P 500 to the ETF shareholders by way of a cash dividend. The cash dividend may be paid out quarterly (every 3 months), semi-annually (every 6 months) or annually (every year). These cash dividends will be taxable as part of the Irish investor’s income.

    The cheapest S&P 500 ETFs have total expense ratios (TERs) as low as 0.03%. That means that, for every €1,000 invested, €0.30 will go to fees. This is effectively the yearly cost of owning the ETF, not to be confused with the fees charged by a broker for purchasing the ETF. High TERs negatively impact investment returns and so, ideally, we want our TERs to be as low as possible.

    S&P 500 ETFs set up in Ireland offer a unique and valuable advantage over other S&P 500 ETFs. You can identify an ETF’s domicile by looking at its International Securities Identification Number (ISIN). For Irish-domiciled ETFs, the first two letters of the ISIN will be IE for Ireland. This would be LU for a Luxembourg domicile, the second most common domicile location for ETFs in Europe.

    But here’s the secret: because of Ireland’s unique tax treaty with the United States, an Irish-domiciled ETF is only subjected to US dividend withholding tax, on the US dividends paid to the ETF, at a special rate of 15%. In comparison, an equivalent Luxembourg-domiciled ETF would be liable to US dividend withholding tax at a rate of 30%. Because of this, investing in an Irish domiciled S&P 500 ETF means more dividends received by the ETF which, in turn, means greater returns for investors.

    Key Insight: Any ETFs offering high exposure to US companies will ideally be domiciled in Ireland to avail of the tax treaty with the United States. This not only applies to North American index funds, but also All-World index funds too. That’s because over 60% of the value of major global equity indices are attributable to US companies.

    Most S&P 500 ETFs use ‘full replication’ to provide investors with the returns of the S&P 500 index. Replication refers to the method used by a fund to provide the index return to investors. Full replication is a form of physical replication, where the ETF physically owns the stocks comprising the index.

    Synthetic S&P 500 ETFs use financial derivative contracts known as swaps to provide investors with the index return. These ETFs fall under scope of s871(m) of the U.S. Internal Revenue Code. That means they’re exempted from US dividend withholding tax entirely provided that they relate to a qualifying index. The S&P 500 index is a qualifying index.

    While we explicitly prefer Irish domiciled S&P 500 ETFs that use physical replication to avail of lower dividend withholding tax, for synthetic S&P 500 ETFs, domicile provides no such advantage. Again, that’s because the dividends would be exempt from US dividend withholding tax anyway. This can bring the likes of Luxembourg domiciled synthetic ETFs with low TERs into consideration. 

    What all of this means for Irish investors is that synthetic S&P 500 ETFs have the capacity to generate higher returns for investors than their physical counterparts. That’s mainly due to the fact that they’re receiving 100% of the value of US dividends. But it’s not just the US dividend withholding tax exemption that determines over or under performance versus their physical counterparts. It’s the net effect of:

    • The dividend withholding tax exemption
    • Total expense ratios (TERs)
    • Swap fees
    • Tracking errors, among other factors

    For the average investor, considering the complexity of synthetic ETFs to begin with, the juice isn’t always worth the squeeze. But for those who want to optimise their S&P 500 ETF investments as much as possible, they are certainly worth looking into.

    When you invest in an S&P 500 ETF as an Irish investor who uses the euro, you’re exposed to currency risk. You're using euros to buy shares in an ETF whose assets are denominated in dollars. As a result, your investment return is not only influenced by the performance of the assets which the ETF owns, but it's also influenced by the changes in value between the euro and the U.S. dollar. 

    Think about it like this: an S&P 500 index fund, which owns investments that are denominated in dollars, might increase in value by 10% over the course of a year. But if, in that same year, the dollar falls in value by 10% relative to the euro, then your actual return is -1%. Similarly, if the dollar increases in value by 10% relative to the euro, then your actual return is 21%. Many investors fail to account for this ‘FX impact’ when investing in the U.S. stock market. To learn more about the effects of foreign currency translation on investment returns, check out our foreign exchange calculator.

    The only way to prevent this from happening is by investing in what’s known as a euro-hedged share class. A euro-hedged share class uses forward currency contracts to eliminate the impact of changes in value between the euro and the U.S. dollar insofar as possible. This means that, in theory, if your shares increased in value by 10% during the year, but the dollar decreased in value by 10% relative to the euro, your return would still be 10%.

    However, this comes at a cost. Euro-hedged share classes tend to have higher total expense ratios than unhedged share classes. So, for every €1 invested in the fund, a greater percentage would go to fees. This begs the question: is the higher total expense ratio worth it? The answer entirely depends on your perspective.

    You could take the stance that you’re investing in the S&P 500 because you want exposure to the stock performance of leading US companies. You’re not investing to get exposure to the dollar. For that reason, a euro-hedged share class may suit you best. But there are counterarguments to that perspective.

    • One could argue that exposure to the dollar further diversifies your portfolio.
    • While a euro-hedged share class protects you from downside currency risk, you’re also cut off from any positive returns that may come from changes in the value of the U.S. dollar relative to the euro.
    • Hedged share classes are susceptible to interest rate risk. Changing interest rates for each respective currency directly impacts ETF shareholder returns.

    Key Insight: There’s a common misconception that if the shares of an S&P 500 ETF are listed in euros then there’s no currency risk. This isn’t true. The underlying assets that the ETF is providing exposure to are still denominated in USD, which creates currency risk. Investing in a simple euro share class of an ETF won’t mitigate the risk either, it must be a euro-hedged share class.

    Frequently Asked Questions

    The NASDAQ 100 isn’t included because we don’t classify it as a true North American index. It’s an exchange-specific index that excludes major US companies listed on the New York Stock Exchange (NYSE). It also includes American Depositary Receipts (ADRs) for non-US companies that have their primary global listing on the NASDAQ.

    The Dow Jones Industrial Average (DJIA) isn’t included because it’s a price-weighted index that focuses on a small list of 30 U.S. blue-chip companies. This means it isn’t a broad-based index. Price-weighted means the constituent companies are weighted in the index by their share price, not their total value.

    The S&P 500 tracks 503 individual stock listings, but contains exactly 500 companies. That’s because Alphabet (Google), Fox Corp and News Corp each have two share classes included within the index. This brings the total number of stocks to 503.

    No, the S&P 500 doesn’t automatically include U.S. companies based on value alone. There are additional criteria for inclusion including minimum market capitalisation, minimum percentage of floating shares, consistent profitability as well as adequate trading volume and pricing. These rules allow the index to exclude the likes of valuable, yet unproven initial public offerings (IPOs).

    You can get close, but you’ll need to purchase more than one ETF. There is no readily available UCITS-compliant ETF that allows Irish investors to own the entire North American equity universe. One alternative would be to purchase one of the ETFs above, plus an ETF tracking a small-cap index.

    Compare ETFs Side by Side

    Ready to choose an ETF? Compare the most popular ETFs available to Irish investors by index, fees, dividends, and more to find the right investment for your portfolio.